What Clean Energy Companies Need To Know About New IRS Rules on Foreign Entity Restrictions

By Ryan J. Regula and Thomas Williams

On February 12, 2026, the Treasury Department and the IRS released Notice 2026-15 (the “Notice”), providing long-awaited interim guidance on the “material assistance from a prohibited foreign entity” (PFE) restrictions enacted under the One Big Beautiful Bill Act (OBBBA). In practical terms, these new rules determine whether your clean energy project or manufactured component qualifies for valuable federal tax credits. If your supply chain includes materials or assistance from certain foreign entities, your eligibility for those credits may be at risk.

The guidance centers on a new compliance metric called the Material Assistance Cost Ratio (MACR), which now governs eligibility for three key clean energy tax credits: the Advanced Manufacturing Production Credit (IRC § 45X), the Clean Electricity Production Credit (IRC § 45Y), and the Clean Electricity Investment Credit (IRC § 48E). Any company involved in renewable energy development or manufacturing should understand how these requirements affect its operations and take steps to evaluate its supply chain now.

Importantly, the Notice is interim guidance, and the Treasury Department and IRS are actively seeking public input. Written comments are due by March 30, 2026. This is a critical opportunity for industry participants and other stakeholders to shape the final rules. Companies that may be affected by these requirements should strongly consider submitting comments or working with experienced energy regulatory counsel to ensure their concerns and interests are reflected in the rulemaking process.

The OBBBA added new provisions to the Internal Revenue Code providing that a “qualified facility,” “energy storage technology” (EST), or “eligible component” does not include items that involve material assistance from a PFE. In short, if your project or product relies too heavily on inputs from prohibited foreign entities, it will not qualify for the associated tax credits.

The effective dates vary depending on the credit at issue. For the Section 45Y and 48E credits, the material assistance restrictions apply to qualified facilities or ESTs for which construction begins after December 31, 2025. For the Section 45X credit, the restrictions apply to eligible components for taxable years beginning after July 4, 2025.

The MACR is the central calculation that determines whether a project or component has received too much assistance from a PFE. Think of it as a ratio that measures how much of your project’s cost comes from non-PFE sources. The higher your MACR, the less reliant your project is on prohibited foreign entities.

For qualified facilities and ESTs under Sections 45Y and 48E, the “Clean Electricity MACR” is calculated by subtracting all PFE-related direct costs from total direct costs and then dividing that result by total direct costs. For Section 45X eligible components, the “Eligible Component MACR” follows a similar approach but focuses specifically on direct material costs rather than total direct costs.

To qualify for a credit, your MACR must meet or exceed certain threshold percentages, which are set by statute and vary based on the type of project and the relevant calendar year. For example, an EST that begins construction during calendar year 2026 must have a Clean Electricity MACR of not less than 55%. Similarly, solar energy components sold during calendar year 2026 must have an Eligible Component MACR of not less than 50%. These thresholds are expected to increase over time, making early compliance planning essential.

Recognizing that full supply-chain tracing can be burdensome, the Notice establishes three interim safe harbors designed to make compliance more manageable.

Identification Safe Harbor. Rather than independently mapping every input in a project, taxpayers may rely on existing Domestic Content Safe Harbor Tables from prior IRS guidance to identify which manufactured products (MPs), manufactured product components (MPCs), and constituent materials need to be tracked. When this safe harbor is elected, the listed MPs and MPCs become the exclusive and exhaustive universe for purposes of the MACR calculation. Items not listed are disregarded, even if they are physically incorporated into the project. This gives taxpayers a clear, bounded set of items to evaluate.

Cost Percentage Safe Harbor. Instead of determining the actual direct cost of each component, taxpayers may use pre-assigned cost percentages from prior safe harbor tables. This can significantly reduce the administrative burden of gathering cost data from multiple suppliers across a complex supply chain.

Certification Safe Harbor. Taxpayers may rely on written certifications from their suppliers confirming that the supplier is not a PFE. These certifications must be signed under penalties of perjury and must state that the property in question was not produced or manufactured by a PFE. Both the supplier and the taxpayer must retain the certification for at least six years and make it available to the IRS upon request. However, a taxpayer cannot rely on a certification if it knows or has reason to know that the certification is inaccurate. Suppliers who provide false certifications face penalties equal to the greater of 10% of the underpayment amount or $5,000.

Assess your supply chain. The MACR framework requires companies to track manufactured products and components and determine whether any were mined, manufactured, or produced by a PFE. Companies should begin mapping their supply chains and implementing documentation systems as soon as possible.

Take advantage of the safe harbors. The interim safe harbors offer meaningful relief from full supply-chain tracing. In particular, the Identification Safe Harbor limits the universe of items you need to evaluate, and the Cost Percentage Safe Harbor allows you to use pre-assigned cost figures rather than gathering actual cost data. Together, these tools can substantially reduce compliance costs.

Put supplier certification procedures in place. If you plan to rely on the Certification Safe Harbor, establish a process for collecting and retaining properly executed supplier certifications. Ensure that certifications are signed under penalties of perjury and include all required representations. Be alert to any red flags that might undermine reliance on a supplier’s certification.

Prepare for heightened enforcement. The Notice signals that the IRS will closely scrutinize compliance with the PFE restrictions. A substantial understatement threshold of just 1% and a six-year statute of limitations underscore the importance of rigorous recordkeeping. Required documentation must be attached to the applicable tax forms (Forms 7211, 3468, or 7207) for the first taxable year in which a credit is claimed.

Submit comments before March 30, 2026. Because this guidance is interim in nature, the Treasury Department and IRS will consider public comments before issuing final regulations. The comment deadline of March 30, 2026, represents a meaningful window for affected companies to raise concerns, request clarifications, and advocate for workable compliance standards. Once final regulations are published, taxpayers will have only 60 days to transition from reliance on the Notice to compliance with the final rules. Engaging in the notice-and-comment process now is one of the most effective ways to influence the shape of the final regulatory framework.

Consult with experienced counsel. Given the complexity of these new requirements and the significant financial stakes involved, companies in the renewable energy development and manufacturing space should consider engaging experienced energy regulatory counsel. Counsel can help confirm that your operations satisfy the new compliance requirements, assist with supply-chain assessments, and represent your interests in the ongoing rulemaking process.